Hedge fund borrowing exposes emerging markets to greater Iran war risk, says IMF

The IMF warns the Iran war is amplifying financing stress in emerging markets, with hedge funds and other nonbank investors seen as a key transmission channel for higher rates and sharper currency moves. The fund says $4tn flowed into EMs from outside the formal banking sector last year, and that these flows are more volatile than bank lending in periods of global stress. According to the IMF, hedge funds and mutual funds have the highest propensity to pull capital when volatility rises, while pension funds and insurers are more stable. It also flags faster-growing flows from stablecoins and a fivefold rise in private credit exposure to EMs over the past decade, estimated at $50-100bn, raising transparency and stability concerns. For precious metals, the near-term read-through is broader risk aversion: weaker EM currencies, tighter financial conditions and higher energy-led inflation can support safe-haven demand for gold, especially if capital retrenchment spreads beyond the Middle East. Key catalyst is the IMF’s upcoming Global Financial Stability Report and the Washington spring meetings, where policymakers may focus on war-driven growth downside and higher prices.